Pakgen Power Limited (PKGP) was incorporated in Pakistan in 1995 with the registered head office company in Lahore. The principal activities of the power company are to own, operate and maintain an oil fired power station having gross capacity of 365 MW in Mehmood Kot, Muzaffargarh, Punjab, Pakistan. The shares of the Company are listed on the Karachi Stock Exchange and Lahore Stock Exchange.
The firm was formerly known as AES Pak Gen Company Limited. The name of the company was also changed from AES Pak Gen (Private) Company to Pakgen Power Limited in November 2010. In June 2010, the Company was acquired by a consortium of Pakistani businessmen comprising of Nishat Mills Limited, Adamjee Insurance Company Limited, Security General Insurance Company Limited, Mian Hassan Mansha, City School Group and Abu Dhabi Investment Council. The Company under the new management was converted from a Private unlimited liability company to a Public Company limited by shares in July 2010.
Major shareholders of the company as on December 31, 2015 include Nishat Mills Limited (27.55 percent), Engen (Private) Limited (17.22 percent) and Adamjee Insurance Company Limited (6.89 percent). The Company originally started its commercial operations in February 1998. The electricity generated is purchased by WAPDA under the Power Purchase Agreement (PPA) executed with the company on September 05, 1995 which is valid for a period of 30 years.
PKGP Investments
In 2015, The directors carried out their due diligence and approved investment in Lalpir Solar Power (Private) Limited, a wholly owned subsidiary of Nishat Power Limited, for over 20 percent equity shareholding. The purpose disclosed was to earn dividend income as well as prospective capital gains. The principal activity of LSPL will be to build, own, operate and maintain or invest in a solar power project having gross capacity up to 20 MW with net estimated generation capacity of approximately 19 MW at project site located at Mehmood Kot, Dist. Muzaffargarh.
Financial performance
Financial performance of Pakgen Power Limited in CY15 was masked by higher profits and even higher margins. But behind the increase profitability in CY15 were some serious concerns for the IPP; after continuously posting a year-on-year growth, revenues nose-dived to abysmal levels in CY15. The net sales in CY15 were down by 51 percent, and this was primarily due to lower dispatch levels of only eight percent compared to 63 percent in CY15, and an average of around 60 percent in the last five years.
This loss in dispatch level is referred to as delta loss in rupee terms; in CY15, the delta loss was Rs 2 billion as plant was under forced outage due to failure of main stream transformer. The plant tripped due to failure of main station transformer, which was shifted to WAPDA transformers' repair workshop for inspection and repair where it was reported as non-repairable. Hence, the company had to import the new transformer, which became operation in January 2016. Also, payment issue with WAPDA, which resulted in irregular supply of fuel, affecting plant operations.
Because of low dispatch levels, WAPDA has raised invoices for liquidate damages to the company However, the firm is of the view that since technically the plant was available to deliver electricity as per WAPDA's requirement, and the failure to deliver was only to financial constrains caused by default in payments by WAPDA, WAPDA cannot claim the liquidate damages.
Looking at the company's historical performance, the situation was opposite with revenues increasing but margins shrinking due to higher cost on fuel consumption. PKGP's financial performance for CY13 continued to show the decrease in net margins even though the firm's revenues witnessed a growth of 12 percent year-on-year. The trend of decreasing margins continued in FY14.
1QCY16 snapshot
In 1QFY16, PKGP was non eventful again. PKGP's jittery performance continued from CY15 which was largely due to the forced outage of the plant as a result of failure of main stream transformer that seriously impacted the firm's implied ROE. In 1QFY16, the firm's revenues were lower by 11 percent year-on-year, and this time, the bottomline skidded into the negative zone. However, the firm witness a decrease in delta loss due to lower oil prices. The plant became operation end of January 2016, but the load factor remained low, which ate away fuel savings.
Outlook
Coming back into the profitability zone in 1HCY16 is likely for Pakgen Power Limited due to low fuel prices and hence consumption cost. However, the firm continues to face the non-payment issues. WAPDA remained unable to meet its obligations, and on 31 December 2015 Rs 10.8 billion was outstanding against WAPDA. However, a key development for PKGP has been approval of its coal conversion of its existing plant.
Also, another key project that the firm highlights is iWater. This project is commissioned at LalPir. It has been replicated at Pakgen in CY16. In this project VVVF will be installed on cooling tower fans and some of the pumps in BOP area. The project has a potential of Rs 70 million per annum savings with a pay back of three years. Also, the management has decided to continue with solar project despite a downward revision of upfront tariff by NEPRA.
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